[Management View]
JAKKS Pacific's management highlighted the significant impact of increased tariffs and the cost of doing business in the U.S. on their Q2 2025 performance. Despite these challenges, the company saw substantial growth in international markets, particularly in Europe. Management emphasized a cautious approach to inventory and cash management, focusing on margin optimization rather than sales volume growth.

[Outlook]
The company plans to continue expanding its international operations and diversifying its manufacturing capacity outside China. New product launches, including the Dizzy Darlings baby doll line and expansions of the Disney ELI and Tote ILI Tini lines, are expected to bolster future performance. Management remains focused on navigating the volatile tariff environment and optimizing margins.

[Financial Performance]
- Total quarterly sales: Down 20% YoY
- U.S. sales: Down 10% in the first half of fiscal 2025
- International sales: Up 33% in the first half of fiscal 2025, with Europe leading at a 65% increase
- Toys/consumer products segment: Sales down 23% in Q2 2025
- Costume segment: Sales down 12% in Q2 2025
- Gross margin: 32.8% in Q2 2025
- Adjusted EBITDA: $2.3 million in Q2 2025
- Adjusted diluted EPS: $0.03 in Q2 2025
- Cash balance: $43 million at Q2 2025 quarter-end
- Inventory: $72 million, including $17 million in transit
- SG&A expense: Up by approximately $2 million in the first half of 2025
- Dividend: $0.25 per share for fiscal Q3 2025
- Credit facility refinancing: New five-year $70 million cash flow revolver with BMO Bank NA

[Q&A Highlights]
Question 1: Do you have any short-term levers to mitigate the impact of tariffs?
Answer: JAKKS Pacific has implemented a duplicate tool initiative to diversify manufacturing outside China. Despite efforts to shift production to Vietnam and Mexico, tariff increases have offset potential benefits. The company plans to move forward with tariffs in mind, accepting them as the new norm.

Question 2: Can you expand on adjustments to your supply chain?
Answer: The company is using a mix of manufacturing locations, including China and Vietnam, to manage costs and tariffs. The focus is on the top-performing SKUs, with a flexible approach to production based on tariff impacts.

Question 3: What are your upcoming license releases over the next 12-18 months?
Answer: JAKKS Pacific is focused on generating cash and being prudent with inventory. The company has several exciting licenses in the pipeline but is cautious about sharing details during this disruptive period.

Question 4: How do you view the third quarter of 2025 in relation to the full year?
Answer: The company is taking a cautious approach, focusing on profitability and cash generation. The third quarter is typically the largest due to the FOB business, but current uncertainties make it challenging to predict.

Question 5: How should investors think about the potential for empty shelves during the holiday period?
Answer: Retailers are likely to focus on well-performing toys and avoid high-risk, heavily advertised items. The company expects a cautious approach from retailers, with a focus on lower price points and essential products.

Question 6: How quickly did FOB ramp up at the end of Q2, and what is the potential for international FOB growth?
Answer: The company managed to ramp up FOB quickly by holding inventory in free trade zones and working closely with factories. International growth is driven by smaller customers and new distribution centers.

Question 7: How long will it take to normalize the impact of tariffs on margins and returns?
Answer: JAKKS Pacific is planning ahead with tariffs in mind, working on cost reductions and maintaining margins. The company is moving forward with the current tariff environment as the new norm.

Question 8: How do you see financial strength as an opportunity for licenses or brand acquisitions?
Answer: The company is seeing increased interest from licensors and potential acquisition opportunities. JAKKS Pacific is cautious about picking and choosing opportunities based on the new tariff environment.

[Sentiment Analysis]
The tone of the management was cautious but optimistic, focusing on navigating the challenging tariff environment and leveraging international growth. Analysts acknowledged the difficult environment and appreciated the company's proactive measures.

[Quarterly Comparison]
| Metric | Q2 2025 | Q2 2024 |
|-------------------------|---------------|---------------|
| Total Sales | -20% | N/A |
| U.S. Sales | -10% (H1) | N/A |
| International Sales | +33% (H1) | N/A |
| Toys/Consumer Products | -23% | N/A |
| Costume Segment | -12% | N/A |
| Gross Margin | 32.8% | N/A |
| Adjusted EBITDA | $2.3 million | $12.3 million |
| Adjusted Diluted EPS | $0.03 | $0.65 |
| Cash Balance | $43 million | $18 million |
| Inventory | $72 million | N/A |
| SG&A Expense | +$2 million | N/A |
| Dividend | $0.25/share | N/A |

[Risks and Concerns]
- Persistent tariff volatility impacting costs and customer orders
- Higher costs of doing business in the U.S.
- Uncertainty in customer and manufacturer behavior
- Potential for reduced shelf time for new products due to delayed retail resets

[Final Takeaway]
JAKKS Pacific is navigating a challenging environment marked by increased tariffs and higher costs of doing business in the U.S. The company is focusing on international growth, margin optimization, and cautious inventory management. Despite the headwinds, JAKKS Pacific is well-positioned with a strong cash balance and new product launches to drive future performance. Management's proactive approach to supply chain adjustments and financial prudence is expected to help the company weather the current uncertainties and capitalize on emerging opportunities.